by Karl Denninger
Is that laced with lead, arsenic, cyanide or polonium?
Citigroup Inc. (C), the biggest U.S. bank to have regulators reject its capital plan this year, dismantled a board committee created during the credit crisis to police the disposal of toxic and unwanted assets.
About $200 billion of such assets remained when directors broke up the Citi Holdings oversight panel last month under new Chairman Michael O’Neill. Shannon Bell, a spokeswoman for New York-based Citigroup, confirmed the move.
$200 billion eh? What are those things worth? How about an example or two?
Pandit’s ability to sell assets also will slow from the past three years, the bank said in February. Citi Holdings contains about $39 billion of home-equity loans, and there’s no market for such loans after they sour, according to the bank. Nor is he the only CEO looking to unload assets; banks in France, the U.K., Ireland, Germany and Spain have announced plans to shrink by about 775 billion euros ($972 billion).
No, really? That might be because an underwater home equity loan behind a first is typically worth nothing, as it is behind any first in recovery. If the first is underwater the second is literally a zero.
So let's assume for a moment that these things are perhaps worth 10 cents on the dollar. That would mean there's $180 billion worth of loss in that box. To put this in perspective that's well over twice the firm's market capitalization and roughly three times the firm's annual revenue!
The amusing part of the book-cooking is that the firm has a roughly $2 trillion balance sheet but allegedly can only generate $50 billion in operating cash flow (that is, nearly four years worth of it in losses are embedded in this trash!) and only $10 billion in annual net income exists (or 20 years worth of "workout.")
This bank is a Zombie -- still -- and yet we continue to pretend it is a going concern.
More than four years on into the financial mess we have solved exactly nothing.